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Following nearly three hours of not answering Senate Agriculture Committee questions on Tuesday, a trio of MF Global (http://en.wikipedia.org/wiki/MF_Global) executives may have thought they’d slipped the noose. In the face of increasingly exasperated committee member questions, the executives – responsible for the eighth-largest bankruptcy in U.S. history and the odd, potentially criminal, loss of an estimated $1.2 billion in customer funds – exhibited amnesia symptoms, reciting a wide range of variations on “I don’t recall.”

In the days just prior to MF Global’s demise, CME – tasked with auditing MF Global’s futures business – had auditors reviewing the firm’s segregation reports. The Oct. 26 and Oct. 27 reports, said Duffy, showed the firm in full compliance.

In fact, the Oct. 27 report “showed the firm held $200 million in excess segregated funds.”

Then, on Oct. 30, “the CFTC informed us they were aware of a draft segregation report for the close of business on Friday, Oct. 28, which showed more than a $900 million shortfall in required segregation,” testified Duffy, CME Group Executive Chairman.

“CFTC and CME staff and auditors returned to the firm on Sunday, Oct. 30, and were informed by this discrepancy was caused by ‘an accounting error.’ Our auditors, working with the CFTC, devoted the rest of the day and night, to find the so-called ‘accounting error.’ No such error was found.

“Instead, at about 2 a.m. Monday morning, Oct. 31, MF Global informed both the CFTC and CME that the shortfall was real and that customer segregated funds had been transferred out of segregation to the firm’s broker dealer accounts.

“After receiving this information, CME remained at MF Global while (the firm) attempted to identify funds that could be transferred into segregation to reduce or eliminate the discrepancy.”

Duffy then spiked Corzine’s credibility. “A CME auditor also participated in a phone call with senior MF Global employees, wherein one employee indicated that Mr. Corzine knew about the loans made from the segregated accounts.”

On Monday, Oct. 31, continued Duffy “MF Global revised its segregation report for Thursday, Oct. 27, indicating that the alleged $200 million in excess segregated funds should have been reported as a deficiency of $200 million. This shortfall on segregation on Thursday, Oct. 27, was hidden by the inaccurate report, a telling sign to keep regulators in the dark.

“It remains to be seen whether this failure to disclose permitted additional segregated funds to be improperly transferred.

“Throughout this time, the firm and its employees were under the direction and control of MF Global management. Transfers of customer funds effectuated by MF Global for the benefit (of the firm) constitute very serious violations of our rules and of CFTC regulations.”

Duffy’s claims came after his earlier testimony before the House Agriculture Committee on Dec. 8 where he didn’t mention the allegation. “This leaves us wondering why you’re sharing it now,” said Michigan Sen. Debbie Stabenow, committee chairman, following Duffy’s opening statement.

Duffy said the information was “not made available to me prior” to the House hearing. “I received this information (on Dec. 10) from an e-mail and phone call from our lawyers. They informed me of what they’d found out in their investigation” but hadn’t shared previously.

Regarding ongoing MF Global bankruptcy proceedings, Duffy backed those calling for customers to be made whole first. Such clients “should be first in line in front of all other participants, including bond-holders and everyone else.”

Duffy stuck another thumb in Corzine’s eye. In the wake of MF Global’s collapse, Duffy doesn’t believe the regulatory system “is broke. I think someone violated the rules.”

Kansas Sen. Pat Roberts rued the fact that Duffy hadn’t been in the panel prior to the MF Global executives. “You have sort of tossed a bomb.”